South Korea's financial regulator has rejected applications by two consortia to set up the nation's third and fourth Internet-only banks. One of them is the Kiwoom Bank consortium led by brokerage Kiwoom Securities Co. while the other is the Toss Bank consortium backed by financial technology firm Viva Republica Co. The Financial Services Commission (FSC) announced the result of preliminary examination on May 26.
The Kiwoom Bank consortium's plans were given a high score for capital and capital finance but a low score for feasibility and innovation. The consortium led by Kiwoom Securities, the largest shareholder with a 25.63 percent stake, consists of many conglomerates which have the ability to make equity investments, such as KEB Hana Bank, the second largest shareholder with a 10 percent stake, SK Telecom Co. and 11 Street Co. under SK Group and Korea Seven Co. and Lotte Members Co. under Lotte Group. Based on the stable composition of shareholders, it was expected to receive a high score for the stability of business plans. However, the consortium failed to qualify due to a low score for innovation and feasibility.
The Toss Bank consortium failed to address questions about its funding ability despite its high level of innovation. The evaluation committee concluded that Toss Bank did not meet the standards for governance structure and funding ability. Viva Republica, which runs the peer-to-peer Toss payment application, has a 60.8 percent stake in the consortium, while Silicon Valley-based venture capital company Altos Ventures Ltd. and Goodwater Capital under U.K. challenger bank Monzo have a 9 percent stake each.
“Innovation is important in screening proposals for an internet-only bank but stability should be considered as well,” said FSC Chairman Choi Jong-ku during a briefing session after announcing the result. “Toss Bank’s business plans received a high score for innovation but had problems concerning the ability to raise capital and the stability of the controlling shareholder.” Choi also said, “Kiwoom's business proposal was not innovative enough.”
Choi said the FSC will resume the process to screen proposals for new Internet-only banks as soon as possible, adding that it will give the two consortia another chance to submit revised applications.